Question

‘Net Asset Turnover’ ratio of a company is 2 times. State with reason whether the following transactions will increase, decrease or not affect the ratio:
Cash sales ₹ 3,00,000
Issue of equity shares ₹ 10,00,000
Issue of 9% debentures ₹ 5,00,000
Credit purchase of goods ₹ 50,000

Hint:

Net Asset Turnover Ratio = Net Sales / Net Assets

• Transactions affecting only Net Sales \(\Rightarrow\) Change ratio
• Transactions affecting only Net Assets \(\Rightarrow\) Change ratio inversely
• Transactions affecting both in same proportion \(\Rightarrow\) May change depending on existing ratio
• Transactions with equal offsetting effects on Assets and Liabilities \(\Rightarrow\) No change in Net Assets, hence no change in ratio

Answer 1